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MINIMUM ALTERNATE TAX

Minimum Alternate Tax


MAT is the minimum tax which has to be paid by companies in the event of their having significant income but no tax liability on account of various exemptions / deductions under the Income Tax Act.

Minimum Alternate Tax ( Sec 115JB)


Computation of tax liability of a company

1.Ascertain income under different heads of income 2.Add income of other persons to be included in the income of the company as per clubbing provisions 3.Adjust current and brought forward losses as per the rules 4.From the Gross Total Income so computed claim permissible deductions u/s 80 80G, 80GGA, 80GGB, 80-IA, 80-IAB, 80-IB, 80IC, 80ID, 80JJA,80JJAA,80LA

5.On the Net income computed as above compute tax at the applicable tax rates : Domestic companies Foreign companies Short term capital gain (STT transactions) 15% 15% Long term capital gain 20% 20 % Winnings from lotteries etc. 30% 30% Other income 30% 40% 5.From the tax claim rebate u/s 88E

6 Add surcharge on tax * If income exceeds Rs.1 crore

5% *

2.5%

7Add education cess @ 3% on (tax + surcharge) 8 From the above tax claim relief if any under sec 90,91,( DTAA) and sec115JAA ( MAT credit )

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Minimum Alternate Tax calculated as under :


Domestic company

. The tax liability so computed cannot be lower

Foreign Company

Income tax Surcharge E.Cess

18.5% of book profit 5% of tax 3% of (tax+ sc)

18.5% of book profit 2.5% of tax 3% of (tax+ sc)

If income exceeds Rs.1 crore

Computation of book profit Net profit as per p/L Account after adjustments is book profit Net Profit as per Profit and Loss A/c Add: 1. Amount of income tax paid /payable 2.Amount carried to any reserves 3. Amount set aside to provisions for meeting liabilities other than ascertained liabilities 4. Amount by way of provision for loss of subsidiary losses 5. Amount of dividend paid or proposed 6. Amount of expenditure related to any income which are exempt 7. Amount of depreciation 8. Amount of deferred tax and provision debited to P/L A/c 9. Amount standing in Revaluation Reserve related to revalued asset on disposal of such asset ( from AY 2013-14 )

Less :
1.Amount withdrawn from reserves or provisions 2.Income exempt from tax credited to Profit & loss A/c 3. Amount of depreciation excluding depreciation on account of revaluation of assets 4. Amount withdrawn from revaluation reserve to the extent it does not exceed amt of depreciation on revalued assets 5. Amount of loss b/f before depreciation or unabsorbed depreciation whichever is less 6. Amount of profit of sick industrial company for the A.Y 7. Amount of deferred tax credited to P/L A/c

Additional depreciation claimed on account of revaluation of assets should be added back to net profit while computing book profits
Amount withdrawn from revaluation reserve equivalent to such depreciation can be deducted from net profits

Certain points to be noted : 1. Sec 115JB provides that amount of loss b/f or unabsorbed depreciation whichever is less shall be allowed as a deduction. Hence if a company has b/f loss and no unabsorbed depreciation then no reduction is allowed since unabsorbed depn. is nil. 2.Provision for gratuity on the basis of actuarial valuation is an ascertained liability. 3.Amount set aside to redeem debentures cannot be disallowed 4.Provision for diminution in the value of investments, doubtful loans doubtful debts cannot be added back as this is in respect of an asset and not unascertained 5.Provision for liability to pay wealth tax cannot be added back to book profit. 6.If a sum is debited to Profit and Loss A/c it will not be added back to compute book profits even if it is disallowed under sec 37. 7.Even if a company is liable to pay MAT, it can still carry forward losses /unabsorbed depreciation as per regular provisions. 8.When a company is liable to pay MAT, it is required to attach a certificate in prescribed for from a CA along with the return of income stating that the book profit has been correctly calculated.

Credit for MAT


1. Compute tax payable on total income ignoring MAT provisions. 2. Determine MAT of book profits 3. Compute tax on 1 4. Compute tax on 2 If tax as per 4 is more than tax as per 3 then the difference is MAT credit which can be carried forward and set off for 10 years

AO has the power to alter net profit :


If profit & loss account is not prepared as per Sch VI Part II If accounting policies , accounting standards, rates or methods of depn. are different from those reported for Company law purposes.

X Ltd is engaged in the business of manufacturing garments( WDV


of Plant & Mach : Rs.55 lacs ). Following information is available :

Sale proceeds of goods ( domestic ) Sale proceeds of goods ( exports ) Amt withdrawn from G. Res Amt withdrawn from revaluation reserve Total Less : Depreciation ( normal ) Depreciation ( revaluation ) Salary & wages Income tax O/s custom duty ( not paid ) Proposed dividend Consultancy fees Other expenses Net profit

2223900 576100 200000 150000 3150000 616000 270000 210000 360000 17500 60000 21000 139000 1456500

For tax purpose X ltd. wants to claim :


a) Depreciation Rs.536000 b) Deduction u/s 80-IB : 30% of income c) Unabsorbed business loss of earlier years : Rs.1480000 The company also has a long term capital gain of Rs.60000 not credited to P/L A/c.

Determine the tax liability of the company.

Dividend Tax : ( Sec 115-O ) As per Sec 2(22) , dividend means dividend as is ordinarily understood and also includes the following :
any distribution entailing the release of companys assets any distribution of debentures or bonus to preference shareholders distribution on liquidation of a company distribution on reduction of capital. Any payment by way of loan or advance made by a closely held company to a shareholder holding substantial interest

If dividend comes under (a) (d) then the company will have to pay tax shareholder does not have to pay tax , If the dividend comes under (e) then it is taxable in the hands of shareholder.

Points to note 1. Any amount declared, distributed or paid by a domestic company as dividend will be charged to dividend tax provided such dividend is paid out of accumulated or current profits. 2. This tax is in addition to normal tax payable by the company. Such tax should be paid within 14 days of declaration of dividend/ distribution/ payment of dividend whichever is earlier 3.
4.

Rate of tax : 15% +sc+ e.cess If such tax is not paid then interest is payable @ 1% per month or part of the month for the period of default and a penalty may also be levied Foreign companies are not liable to pay dividend tax

5.

Cascading effect
Dividend Distribution Tax is to be paid on dividend declared or paid minus dividend received from subsidiary company provided the subsidiary company has paid dividend distribution tax